Crypto regulation slows progression? or aids long term growth?
You would have had to have been living in a cave over the past 4 months to have not heard of cryptocurrency or Bitcoin yet. Bitcoin’s price peaked at just over $19,000 USD in mid December, and has now fallen to around the $10–$11,000 USD mark. Bitcoin seeks to be a new decentralized international monetary system, which would not require third parties to process transactions, and would take the power to print money away from the central banks. Despite its many short comings Bitcoin and the blockchain, which is the technology powering it, do show promise for the future. However, the volatility and lack of regulation in cryptocurrency relative to other assets has raised many questions about their validity and made them a somewhat dangerous gamble for the average investor. One of the biggest factors in their success is completely out of the hands of the market, this is regulation by governments.
Over the past few months the industry has earned its reputation as the “wild west” of investment with little regulation from governments, but more recently we have seen some notable regulations coming in to play. Malaysia’s central bank is the latest to step in an regulate cryptocurrency after it’s massive ebbs and flows. This after Asia has become the definitive leader in all things cryptocurrency and blockchain. Nearly a third of all bitcoin transactions are conducted in Yen and the largest cryptocurrency exchange in the world, Bithumb, is located in South Korea. The Malaysian regulations on the whole seem to be reasonable enough and aimed mostly at hindering some of the illegal activities associated with the digital currencies as well as some protections for investors. Exchanges will be required to be more transparent about pricing practices, and will also be subject to the same anti-terrorism and anti-money laundering regulations as law firms, accountants and real estate agents. These regulations are somewhat common sense, and rather than slowing innovation I believe this type of regulation can increase the legitimacy of cryptocurrency in the long run.
Contrast these regulations with the likes of those in China, who have taken a hardline against digital currencies. In early September 2017, they banned ICOs entirely, an “Initial Coin Offering” or ICO is a fundraising method for new cryptocurrencies. South Korea was reported to be thinking about implementing a similar ban, but instead settled for regulations with regards to anonymous trading. The reality of the situation is this; we are already heading towards a cashless, digital society. Most of the world’s money does not exist in physical form but rather digitally, on spreadsheets, held by banks and credit companies. Our current monetary system is a function of evolution, and cryptocurrencies seem like the next step in this evolution. They allow us to continue towards digital money, but remove the need for third parties to process all transactions while at the same time making it far easier to move money across borders. As they stand now, cryptocurrencies are far from perfect, but strict regulations shutting them down will stifle the innovation entirely. The goal now becomes finding a way to regulate them in order to protect individuals, while not slowing them down so much that they cannot iterate and innovate.
It seems obvious that the industry is lacking in some regulation. ICOs and anonymous trading have lead to a massive amount of clearly fraudulent coins like Bitconnect, and have also lead to beliefs that cryptocurrency is being used to fund terrorism. ICOs have the potential to be very dangerous, essentially allowing anyone to raise funds without having a product, some of these ICOs are genuinely trying to better the world, while others are just trying to get rich quick. Either way it seems that governments are starting to realize this and are slowly beginning to crack down. The hope is that they can find some healthy medium, between the complete lack of regulation in the western world and the debatable over regulation in China. The slow and steady approach of the Malaysian central bank gives hope and shows that regulation and innovation don’t necessarily have to be mutually exclusive.
Do you think regulations are stifling innovation? or helping long term?
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